How insurance is transforming for the digital age

While many other sectors within the finance industry have been turning more and more digital over the last decade or so, there’s one sector that has been lagging behind: insurance. Despite being a necessity for almost every part of our personal and business lives, the insurance processes, transactions, and vital decisions have been essentially the same for decades.

But in recent years, that’s all started to change. Insurance has transformed. Insurtech has moved front and center. As our CEO, Dirk Kruse, said in his recent interview with InsurTech Digital, the industry now has a huge technological opportunity to create new business models and customer experiences.

In this blog, we’ll examine how insurance and insurtech are transforming for the digital age, and how providers, businesses and customers are all starting to benefit. 

How insurance is transforming


Embedded insurance

At the forefront of the insurtech revolution is embedded insurance. A subsector of embedded finance (more on that in our ‘What is embedded finance?’ blog), it involves embedding innovative insurance services via APIs into non-financial products or ecosystems to provide the smoothest possible customer journey. 

This allows all sorts of different options, such as payment protection, travel or home insurance, to be embedded into customer journeys and offered at the point of sale. It also provides reams of additional data that can be used to create new, flexible and targeted products. All of which provide businesses with new revenue streams and the opportunity to distinguish themselves from their competitors. In the meantime, insurance companies gain a new distribution channel.

This is all made possible by licensed insurance providers adopting an Insurance-as-a-Service (IaaS) model. This way they outsource their insurance infrastructure to budding insurtechs and digital businesses looking to create their own insurance offering. This gives them access to a considerably larger customer base at far lower acquisition costs.

The IaaS model also allows for the rapid creation of exciting insurtech startups. As the provider takes care of the back-end licensed functions, startups can focus on creating a more seamless front-end user experience than potential policyholders have been used to in the past.

Insurance is getting personal

According to McKinsey, by 2030, there will be an estimated one trillion connected devices such as smartphones and watches, home assistants and fitness trackers in use worldwide. All of these internet-of-things (IoT) devices are gathering data 24/7. This data provides a great base to finesse and personalize insurance products, or even create entirely new product categories. This can also be enriched with the swathes of data opened up by initiatives such as open banking and insurance, as well as the data gathered from embedded finance and insurance products.

With access to unprecedented levels of detail on how a person lives or business operates, insurers can create hyper-personalized products. These innovative propositions carry less risk for them and better and more cost-effective protection for their policyholders. For example, before offering a health or life insurance policy, insurers can examine the exercise patterns presented by a smartwatch or phone, or consider the locations of food and drink purchases. This approach was pioneered by Discovery Insurance Group, echoing its market-leading behavioral banking strategy.

In motor insurance, insurers are using telematics to create equally innovative products. Telematics policies primarily use GPS technology to measure how a vehicle is being driven. Now, instead of grouping drivers into stereotypical cohorts, premiums are based on how far or fast you drive or how quickly you go around corners. The Pay-As-You-Drive model is being replaced with Pay-How-You-Drive.

Machine learning (ML) and artificial intelligence (AI)

To truly take advantage of all of the data available and offer an increasingly intuitive service, some insurance providers are using AI and ML to uplevel and streamline their services. The use cases afforded by AI for insurance are practically endless. But, currently, they’re focusing on three main areas.

Reducing administrative workload through automation

AI and ML can also be used to automate formerly manual processes, like underwriting, document collection, and application inspection. This allows insurers to reduce workload and refocus on providing quality customer service and enhancing innovations.

Insurance data analysis

Not only does automation reduce workload, it vastly improves the quality of work, creating better processes.

Take claim management. Manual claim processes can eat up to 50-80% of premiums’ revenues. Now, thanks to ML, algorithms can scan reams of incoming data, automatically interpret it and provide end-users with a faster settlement. It’s a win-win for both parties. And that’s just the start. Over time, the algorithms will develop to make more complex and accurate decisions.

It even extends into adjudication. ‘AI systems, paired with supporting hardware for data collection, can make evidence gathering and appraisal sessions a lot safer and faster.’ says AI data engine A7, citing drone footage or image recognition of damaged items or areas to devise more accurate payouts.

Take another example of identifying fraudulent claims. In the US, insurance companies lose over $40bn annually to fraud (and that’s not including health insurance). ML can spot recurring patterns that signal fraudulent behavior, while AI can run automatic background checks during onboarding to calculate risk.

Predictive analytics

The third area of focus is predictive analytics. Today we have a wealth of data from a variety of sources available to us, such as the aforementioned IoT, customer interactions, and even social media. Combining the data with  ML and AI analysis enables us to better understand and predict policyholder behavior. Today, more than two-thirds of insurance companies use predictive analytics to reduce issues and underwrite expenses, and 60% believe it to be helpful in increasing sales and profitability.

Despite the advantages AI and ML can offer insurers, many traditional providers still lack the base technology to make it a reality. Those looking to uplevel, need first to consider their data analysis platform and leverage cloud capabilities.

Insurance is moving onto the cloud

Increasingly, the most forward-thinking insurers are migrating their infrastructure into the cloud. Those that don’t will struggle to take advantage of the above transformations.

As Deloitte puts it in its 2023 Insurance Outlook, transitioning to cloud platforms is potentially ‘the most significant technology initiative launched by insurers over the past few years, because of its potential impact throughout the value chain.’

Not only does migrating cut infrastructure storage and maintenance costs, but it also primes insurers for innovation. It makes it easier to host existing platforms, deploy new applications, run ERP and CRM systems, integrate APIs, and scale.

While the numbers making the switch are growing, many insurers remain tied to their legacy technology. Those who take the leap to migrate now still maintain a considerable competitive advantage.

Digital insurance is coming of age

Insurance’s digital age is well and truly here. Policyholders are now able to access modern, customer-centric insurance services provided by innovative, tech-first insurers. Despite this, many insurers remain stuck on their legacy systems, unable to scale and meet the needs of modern consumers. This doesn’t need to be the case. With the right partner, transformation is quick and easy.

SAP Fioneer is accelerating insurance companies’ transformation, including their move to the cloud with C4I (cloud for insurance). The Engagement Hub enables them to easily assemble tailored products for specific segments, and connect swiftly to the broader insurance ecosystem. This facilitates new offerings and embedded insurance, so they can bring new products to market fast. Furthermore, Fioneer’s cloud- ready insurance platform streamlines data flows across and between functions to deliver instant, data driven quotations, claims or payments. Find out more about our Amplify Insurtech partner programme here or get in touch to hear more about our innovations in the insurance space.

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